Uneventful CPI and Retail Sales Data for July

While neither the retail sales nor the CPI data for July produced any surprises, they offer, in a low-key kind of fashion, a somewhat reassuring overall message that can be summarized as follows: despite concerns about a retrenchment in personal spending recently, consumption is not pulling back in a particularly ominous way, while the pace of the disinflationary process may be losing some steam.

The 0.4% increase in last month's retail sales was broadly in line with expectations and was largely boosted by a 1.6% surge in auto sales and a 2.3% spike in gas station sales- both items that are not usually considered as a credible indication of underlying consumer spending trends. In the last three months, total retail sales are up a fairly respectable 5.9% over the same three-month period in 2009, a comparison that admittedly benefits from the distinctly weak state of the economy in the first half of last year.

The more meaningful measure of retail sales, and the one that enters directly the GDP calculations is total sales less autos, building materials, and gas station sales. That measure edged lower by 0.1% in July, its third decline in the last four months.

Still, unimpressive as these numbers admittedly are, they remain consistent with growth rates of about 2 1/2-2 3/4% in both personal spending and GDP for the third quarter.

The 0.3% rise in the July CPI was entirely due to a 2.6% increase in energy prices (with gasoline prices, in particular, up 4.6% for the month), the first increase of that component since January. The energy category accounted for 2/3 of the gain in the overall CPI last month. Outside food and energy, the core index rose by a trend-like 0.1%, leaving its year-over-year increase unchanged at 0.9%.

The recent string of impressive monthly gains in used cars and trucks prices continued in July, with that component rising by 0.8%, following gains of 0.9% and 0.6% in the previous two months alone. On a year-over-year basis, used cars and trucks are up a stunning 17% and remain an important reason for which the disinflationary process in both the overall and core CPI has not been even more intense in the course of the last year

In a possible sign that the disinflationary dynamic may in fact be in the process of cooling somewhat, the shelter component (accounting for 30% of the overall CPI) rose 0.1% in July, its third consecutive such increase.

Anthony Karydakis